It’s been a tough year for investors in Scottish Mortgage (LSE: SMT). Rising inflation as a result of supply chain issues, alongside the tragic war in Ukraine has seen the investment trust reverse some of the fine form that it’s produced in the past few years. In 2022, the Scottish Mortgage share price is down just shy of 40%. In the last 12 months, the trust has fallen nearly 45%.
It’s clear the next few months may be volatile when it comes to investing in the stock market. However, I think Scottish Mortgage shares, currently trading for well below 800p, could be a smart long-term addition to my portfolio.
The story so far
Scottish Mortgage made a name for itself back in 2020 when it rose an impressive 105% despite Covid-19 running rife on markets. However, since then, the trust’s growth has significantly slowed.
The main reason for its demise year to date is inflation. Rates have been on the rise across the globe. And as a result, markets have seen trillions wiped off their value. Inflation has at times been above 10% in both the US and the UK. And with rates showing no sign of slowing down, this could spell trouble for the Scottish Mortgage share price.
This is because during these volatile periods the worst affected assets are growth stocks, which Scottish Mortgage focuses on holding in its portfolio. Due to the volatility these stocks provide, investors tend to shy away from them during difficult times, instead switching to ‘safer’ alternatives.
Due to this, investors have been selling off their shares in the trust. With its top holdings including names such as Tesla and ASML, which are down 40% and 38% this year, it’s clear to see why Scottish Mortgage has suffered.
Is it time to buy?
Despite this, I think now may be the perfect time for me to buy the stock.
Firstly, the investment style adopted by its management team is one I can relate to. By this, I mean buying for the long hold.
Performance is measured over a five-year+ period, meaning the volatility that can be seen in the markets right now shouldn’t pose a threat. While past returns are not an indication of future performance, the last five years have seen the trust return an impressive 80%.
On top of this, I also like the diversification I get through buying Scottish Mortgage shares. As a retail investor, I get access to over 100 companies all through a single investment. For me, this is perfect.
One issue is its weighting to China. With some cracks beginning to appear in the country’s economy, this could leave the trust exposed. On top of this, as inflation rises in the months ahead, the trust may also see its price take a hit.
With this said, I’d happily open a small position in Scottish Mortgage today. Its focus on growth stocks combined with its long-term approach leads me to think I could see some healthy returns in the years ahead. I also think its weighting in China will bear fruit in the long run.
